The news last week that the Office of Fair Trading (OFT) is investigating how retailers use online data to target shoppers with personalised pricing has attracted a lot of attention. With digital channels growing in importance, more brands are using the information collected online to target customers in new ways.

However, the OFT is questioning how aware consumers are about how brands are using their personal data to target them with different price promotions and if they find it off-putting. This issue is only going to get more complex as technology develops, and the use of targeting and personalisation increases as more data is collected in more diverse ways.

Customer data means better targeting

Brands want to build engagement and create relationships which have lasting value for both customer and brand. The trend towards relationship marketing relies heavily on data - you need to know exactly who your customer is before you engage with them.

Understanding who your customers are, what they buy and how, their age, price sensitivity, preferences and interests is all crucial information needed to communicate with customers in a way that keeps them engaged but also attracts the attention of prospective new customers.

Personalised pricing is no different than other forms of personalisation - it can be used to reward regular customers according to their individual profiles. However the key to successful personalised pricing is firstly being transparent about the practice and secondly ensuring relevancy.

Personalised pricing happens offline

What the OFT needs to consider is that personalised pricing already happens in the offline world. Two good examples of this are in the car industry and at UK universities. For example, a car dealer will assess all the information he has on a potential buyer, for example how they dress, where they live, what car they arrive in, how much they say they are willing to spend etc.

Other factors such as the current stock situation and bartering between the dealer and the potential customer will mean that the final price agreed is often somewhere between what is on the windscreen and the dealer price.

At which point, it is up to the potential buyer if they want to accept or walk away. In the case of universities, it is common practice to charge different rates for UK and non-UK students for exactly the same courses and tuition.

In the online world, personalised pricing is now possible. Brands can access the information they hold about browsing history, what kind of computer is being used and assess if it’s appropriate to make a special offer. As in the offline world, the potential customer can either accept or shop elsewhere.

The practice is essentially the same. For those that get it right, both customer and brand walk away happy. For brands that don’t, it’s essentially their loss, the loss of a sale.

Collecting data doesn’t have to be creepy

Collecting data about customers online always raises privacy issues and is understandably considered by many as a bit ‘big brother-ish’. That is why marketers must ask permission to collect information and explain how it will be used to benefit the customer.

Better data will mean that the customer benefits from receiving branded content that is more interesting and relevant to them.

This approach places greater importance on building a relationship with customers rather than acquisition, requiring a fundamental shift in the way many organisations operate their marketing function. The key to success for marketers is to ensure they are transparent with customers about what data they collect and how they will use it to improve the customer experience with a view to building long-term loyalty.

With this approach in mind, good relationship-first marketing will stem from accurate data collection and understanding the customer. Smart marketers will use data to segment customers into groups and target them with different products and offers depending on their preferences and interests.

Personalised pricing is one way that marketers can target customers based on their profile. Some retailers are doing this well while others are not.

For example one large online retailer introduced personalised pricing without being transparent about the practice, leading to a backlash from customers. Starbucks, on the other hand, is open about offering special pricing to loyal customers leading to increased uptake of its pre-pay card scheme.

Social data is another channel for personalisation

The advent of social media is giving brands another channel to collect customer information. However, according to Forrester, only 13% of marketers are using social data to inform and improve their interactive marketing campaigns.

Social provides brands with another medium to collect data about preferences and to incentivise customers with personalised pricing when relevant such as on their birthday which is visible on Facebook.

But, like all digital channels, social should not be used in isolation; it must be part of an integrated campaign. Used alongside other channels, social can help marketers promote lasting value and genuine engagement, leading to a more complete customer view and a higher total value over the customer lifecycle.

In a competitive market, it is important for companies to stand out from the crowd and earn consumer trust by developing a personal relationship with their customers. Trust breeds loyalty, and can be achieved through targeted email, social and mobile campaigns, which make use of customer data to creatively capture the attention of individual consumers. Incorrect use of personalised pricing is a prime method of destroying that trust.

Modern technology is making it easier than ever to speak to millions of customers as though they are individuals, increasing trust, loyalty and engagement. However brands need to be transparent about how they use customer and prospective customer data to target them with personalised promotions.

Successful marketers will be smart about how they use data to keep repeat customers loyal but also entice new prospects, and personalised pricing will only have a role if it is relevant and brands are transparent about the practice. This approach not only benefits marketers and brands, but the consumers too.

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